Understanding Employment Contracts and Policies in Churches: Case Studies

Employment policies in churches often face legal challenges, from the enforceability of non-compete clauses to the requirement of consideration for policy changes. Learn how to navigate these issues effectively while maintaining fairness and compliance.

Last Reviewed: January 28, 2025

Most churches have adopted employment policies, either in a policy manual or as individual policies. Examples include:

  • Employee standards
  • Social media use
  • Cell phone usage
  • Expense reimbursements
  • Overtime
  • Privacy
  • Personnel files
  • Safety and security
  • Insurance
  • Compensation and benefits
  • Discipline and dismissal
  • Evaluations
  • Intellectual property
  • Conflicts of interest
  • Leaves of absence

Changing Policies and Contract Law

For many churches, policies change over time. Additions and modifications are common. However, church leaders often assume that these changes automatically apply to both current and future employees.

This assumption can be incorrect due to a key principle in contract law: consideration.

  • Consideration means each party to a contract must receive something of value in exchange for their commitment.
  • Without consideration, a contract is generally not enforceable.

Example:
If X and Y enter a contract for the sale of X’s home:

  • X’s consideration is the purchase price paid by Y.
  • Y’s consideration is the home itself.

This requirement distinguishes a contract from a gift, where no value is exchanged by the recipient.


Consideration in Employment Agreements

When employees are hired, their employment itself can serve as valid consideration for their agreement to be bound by the employer’s policies—especially when documented properly.

However, for existing employees, courts often require additional consideration beyond continued employment to enforce new or amended policies.


Case Study: Lack of Consideration in a Non-Compete Agreement

Overview

A Pennsylvania case highlights this issue:

  • Employer hired a salesman (plaintiff) in 2007.
  • In 2010, the plaintiff was asked to sign a new employment contract with a two-year non-compete clause.
  • In 2012, the plaintiff resigned and joined a competitor.

The employer tried to enforce the non-compete agreement, but the plaintiff sued, arguing it lacked consideration.

Court Rulings

Both the trial and appeals courts ruled:

  • Because the plaintiff received no additional benefit when signing the new agreement, there was no valid consideration.
  • Continued employment alone was not sufficient.
  • Language like “intending to be legally bound” did not substitute for consideration.

Key Point:
For a restrictive covenant to be enforceable after employment begins, the employee must receive a corresponding benefit or change in status.

Case Reference:
Socko v. Mid-Atlantic Systems, 2014 WL 1898584 (Pa. Super. 2014)


Relevance for Church Leaders

(1) The Importance of Consideration

This case serves as a warning:

  • Unfamiliarity with the requirement of consideration can make parts of a church’s policy manual unenforceable.
  • Continued employment usually isn’t enough to bind employees to new policies.
  • Some employers have employees sign agreements at hire agreeing to current and future policy changes. However, results vary by state, and legal counsel should be consulted before using this approach.

Common situations where consideration issues arise:

  • New employment policies
  • Non-compete clauses
  • Promises of post-employment benefits

Real-Life Examples

Case Study 1: Widow’s Agreement for Continued Payments

A Tennessee court ruled that a church’s agreement to make payments to a former pastor’s widow was unenforceable:

  • Why? The widow provided no consideration in return.
  • Promises like being the “first lady,” losing fringe benefits, or refraining from remarriage were not sufficient consideration.

Case Reference:
Cochran v. Robinwood Lane Baptist Church, 2005 WL 3527627 (Tenn. App. 2005)


Case Study 2: Distribution of Church Sale Proceeds

A Pennsylvania court addressed a church dissolving and selling its property:

  • Proceeds were proposed to be given to the pastor for past services.
  • Court ruled that past services are not valid consideration for current payments.
  • Payments beyond the pastor’s salary were treated as gifts, which were not permitted.

Case Reference:
In re First Church, 2011 WL 2302540 (Pa. Common. 2011)


Case Study 3: Counseling Fees for Abuse Victim

An Indiana court ruled that an Archdiocese was not liable for reducing therapy payments to an abuse victim:

  • The Archdiocese’s support was based on a moral obligation, not a legally enforceable contract.
  • Their written policy explicitly stated it was not a contractual commitment.

Case Reference:
Doe v. Roman Catholic Archdiocese of Indianapolis, 958 N.E.2d 472 (Ind. App. 2011)


Exceptions to Consideration

Case Study 4: Detrimental Reliance

Courts sometimes enforce promises under the doctrine of promissory estoppel or detrimental reliance:

  • If a party reasonably relies on a promise to their detriment, a court may enforce it.
  • Example: A synagogue successfully enforced a member’s dues based on detrimental reliance.

Case Reference:
Temple Beth Am v. Tanenbaum, 789 N.Y.S.2d 658 (Dist. Ct. 2004)


Case Study 5: Widow’s Promissory Estoppel Claim

Darla, from Case Study 1, also argued promissory estoppel:

  • She claimed her reliance (not remarrying) made the church’s promises enforceable.
  • The court rejected this, because restraints on marriage are void as a matter of public policy.

(2) Non-Compete Clauses in Church Employment Contracts

Some churches use non-compete clauses to prevent pastors or employees from starting a competing church after leaving.

Important legal considerations:

  • Non-compete clauses are disfavored and scrutinized closely by courts.
  • They must be reasonable in:
    • Duration
    • Geographic area
    • Scope of restricted activities

Case Reference:
Central Indiana Podiatry, P.C. v. Krueger, 882 N.E.2d 723 (Ind. 2008)

Best Practice:
Churches should consult legal counsel before adopting non-compete clauses.


Final Note

While this guide offers general legal principles for churches, it is always wise to seek professional legal counsel before making decisions regarding employment policies, contracts, or agreements.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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